Who consumed parts under separately sold second- and third-year television warranties assigned to a service company?

Plain-English summary

A sales organization separately solicited second- and third-year parts warranties from television owners and assigned the agreements to a television-service company.

Because the warranties were separate from the original television sales, selling the coverage was not a sale of tangible property. The warranty seller was the consumer of parts and materials furnished under the agreement.

The service company assumed the seller's warranty obligations through assignment and took the same position. It therefore owed tax measured by its cost of covered parts and materials. If the original seller had paid tax on the full warranty price and assigned the contract before supplying anything, the letter said a refund claim appeared appropriate.

Common questions

Did assignment make the service company a reseller of parts?

No. It became the consumer under the warranty obligation.

What measured its tax?

The cost price of parts and materials it furnished.

Could tax previously paid on the warranty selling price be refunded?

The letter said a claim could be appropriate if assignment occurred before any parts or materials were furnished.

Citations and references

• California optional-warranty treatment — separately sold coverage made the obligor, including an assignee, consumer of parts and materials

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/490-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/490-0540.pdf

Original ruling text

490.0540

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

April 25, 1951

Mr. M--- L. B--XXXX --- ----- --- XX, California
Dear Sir:
This is in answer to your letter of April 20 with respect to the application of the State sales tax to parts furnished by your client, a television servicing company, pursuant to second and third year parts warranty agreements which it has purchased from a sales organization which solicits such warranties from owners of television sets. It appears that the second and third year parts warranties referred to in your letter are sold separate and apart from the sale of the television set. Whether or not any parts will be furnished under such agreements will, of course, depend upon the requirements of the particular set for which the warranty is sold during the period of the warranty. Under such circumstances it is our opinion that the sale of the warranty does not constitute a sale of tangible personal property and that the seller of the warranty is the consumer of the parts and materials which he furnishes, pursuant to the warranty agreement. As your client assumes the obligations of the seller of the warranty upon the assignment of the warranty agreement to him, he occupies the position of the seller of the warranty agreement and is deemed to be the consumer of parts and materials which he furnishes, pursuant to such agreements. Your client, accordingly, will be subject to the tax measured by the cost price of such parts and materials. If the person or firm which originally sells the warranty agreement has paid the sales tax measured by the full sales price thereof, and has assigned the agreement to your client before furnishing any parts or materials thereunder, it appears that a claim for refund would be in order. Very truly yours,

R. G. Hamlin
Tax Counsel
RGH:HB
cc:
W. R. Thomson